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Transforming the Big 3

Democrats Don't Want to Save Detroit; They Want to Remake It

Barack Obama and the Congressional Democrats are clearly determined to extend Detroit a ‘loan’ that runs into the tens of billions of dollars, and which seems unlikely ever to be repaid. But as the Bush administration negotiates with Congress over the package, it’s clear that Democrats in Washington don’t want to ‘save’ the automakers. Rather, they want to run a car company and ensure that tens of thousands of UAW members continue to pay their union dues.

Harry Reid makes that clear when he refuses to provide funds to the Big 3 without dictating corporate strategy:

The Bush administration opposes using part of the $700 billion financial rescue package to help the automakers. The White House has instead proposed freeing up a separate $25 billion in loans that were designed to help carmakers retool factories to build more fuel-efficient vehicles. They were included as part of last year’s energy bill toughening mileage standards.

Democrats, however, don’t want to divert that money. Senate Majority Leader Harry Reid of Nevada on Friday called the idea “unacceptable.”

House Speaker Nancy Pelosi (D-Calif.) last week voiced opposition to changing the rules for those loans, saying it would represent a step back for the industry’s viability and competitiveness. Democrats argue the industry is in trouble because it concentrated on building gas-guzzlers for too long.

But if Democrats in Congress are truly interested in saving the U.S.-headquartered automakers, wouldn’t they jump at the chance to speed $25 billion in assistance to Detroit? The only possible objections are that saving these companies is not all that high a priority, or that they regard themselves as better managers of the companies than the existing teams. Barney Frank clearly fits in that latter category:

A measure to speed $25 billion in emergency aid to the nation’s automakers will include provisions designed to protect taxpayers, congressional Democrats said yesterday, including a ban on bonuses for employees who make more than $200,000 a year and a government oversight board with power to veto corporate decisions.

The bill, which is expected to be unveiled today on Capitol Hill, also would bar the automakers from paying dividends to shareholders for as long as the firms owe the government money, Rep. Barney Frank (D-Mass.) said on CBS’s “Face the Nation” yesterday…

Yesterday, Frank said he plans to go further in the auto bill, adding bans on dividends and bonuses for highly compensated employees. Frank said he also would create a “very tough oversight board that, among other things, could veto ventures that would take some of this money and maybe put it overseas.”

That board would be composed of “the leading executive branch officials who have jurisdiction,” Frank said, listing the secretaries of labor, commerce, energy and the environment.

Notably missing among the restrictions mentioned by Frank: a requirement that the UAW re-negotiate a labor agreement that has caused labor costs for the Big 3 to be much higher than for other automakers operating in the U.S. What are the chances of GM, Ford, and Chrysler recovering if they are run from Washington, and regard the interest of the union as more important than manufacturing quality cars?

It’s pretty clear that the best way to make America’s automakers competitive again is to force them to undergo major restructuring — probably through bankruptcy. But those who support a bailout should at least be forced to spell out why major changes are not needed to ‘fix’ Detroit, and why they think federal bureaucrats are more likely to run a car company successfully than private sector managers who have made a career of the job.